Retailers know that discounts drive sales but, when used incorrectly, they can also contribute to loss. Savvy shoppers know that stacking discounts in the form of coupons or weekly deals will save them money, sometimes bringing the price below even the retailer’s cost of goods.
Can retailers still use discounts, keep customers happy, and avoid being in the red?
Why everyone loves discounts
Retailers receive a lift in sales by offering discounts if they are applied correctly. Retailers use discounts to move obsolete or excess inventory, introduce a new product, attract new customers (or draw them away from competitors), and increase traffic to websites and brick-and-mortar stores. Whether it’s a Memorial Day sale or an end-of-year inventory blowout sale, retailers’ sales are bound to increase with discounts.
Deals offer a couple benefits. Consumers can either be driven to your store because they heard about an appealing discount, or existing shoppers could be driven to increase their basket due to a well-structured sale. Psychological tactics influence why and when people buy, and discounts are often an incentive for consumers to purchase, including:
Basic vs. Upgrade options – People will pay $9.99 for a basic New York Times digital + print subscription but will pay $16.99 per month for the same offering and a weekly crossword puzzle. Bundling products that offer more value are a great way to attract consumers who perceive more value from the bundle.
Make the intangible, tangible – Retailers need to translate benefits into dollars for consumers. Because people don’t understand kilowatt savings, retailers need to translate energy to dollar savings. In one study, people could save 12% in one year or 48% over 10 years on their energy bills using lower-energy consuming appliances. The retailer increased sales by promoting the 10-year energy savings, increasing the sales of the higher-cost appliances.
Stacking, in the correct order – Stacking discounts happens when retailers add multiple discounts together. To appeal to customers, putting the lower discount first is a better incentive. “10% weekend sale + 30% off regular prices” drives more sales than “30% off regular prices + an extra 10% weekend sale.” Studies show that stacking might be a better in-store incentive than for online purchases. Why? Online buyers see that the total discount is 40% right away instead of in-store shoppers who must wait until they get to the check-out lane to see the total savings.
Discount and coupon stacking isn’t a secret and is practiced at many stores. Coupon collectors know how to get a great deal and are willing to make the extra effort to save money.
How much are discounts costing you?
Discounts may increase top-line sales or revenue, but do they increase retailers’ bottom-line revenue? With margins stretched thin, retailers need to know the true impact of discounts.
When retailers allow multiple discounts to be applied to the same order, the order in which the discounts are applied can also have a significant impact on profit margins.
Let’s take this example:
A customer buys a product that retails for $50. As part of the retailer’s loyalty program, they receive an additional 10% off their order and have a $7 coupon for the item.
While 70 cents may not seem to have a significant impact, if the retailer sells 10,000 units of those $50 items to loyalty program customers, they are losing $7,000 in profit – on one SKU.
These transactions will go unnoticed for many retailers if they don’t have the time or data to compare the data. Whether they are selling online, in-store, or both, these profit losses are virtually invisible. Unfortunately, many retailers don’t have the right tools to identify discount stacking and see where their profits are being shaved to the bone.
How to find discount staking and improve profits
- Identify transactions affected by multiple discounts or promotions
- Create optimal discount strategies by location, SKU, and related options
- Project potential profits from marketing campaigns and discount offerings
- Calculate comparative profits by SKU for multiple discount strategies
- Compare the performance of SKUs and discount alternatives
- Identify possible instances of discount fraud and abuse
Profits depend on making the right decisions backed by real-time, accurate data. Retailers require a central data bank of items, locations, and discounts to create reports and queries, where they can effectively ask questions about their data and gaining valuable insights.
What if? could be the most powerful question retailers can ask. With Agilence’s promotions analytics, retailers have the power to ask What if questions that include:
- What if…we offered discounts on hard-to-move merchandise?
- What if...we offered exclusive discounts to online shoppers in our loyalty program?
- What if...our holiday sale ran for 10 days instead of 7?
- What if…we changed our discount calculations to satisfy customers and improve our bottom line?
Retailers must use every tool available to retain customers while increasing sales. Data analytics provides leaders with the information they need to make better decisions while keeping customers happy.
Agilence’s retail customers are only limited by their creativity. If stacking discounts, lackluster promotions, or hard-to-use analytics programs are draining your profits, we can help find the specific items and programs that will boost sales and profits.
Learn more about how to optimize your promotional efforts and significantly boost profits in our new white paper, “Delivering a MONSTER Quarter: The Ultimate Guide to Increasing Sales through Better In-Store Promotions.”